2010_RL1 - EC 210 Revision Lectures Milan Lisicky...

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Unformatted text preview: EC 210 Revision Lectures Milan Lisicky m.lisicky@lse.ac.uk April 27, 2010 Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. John M. Keynes 1/42 1 organization 2 revision utility maximization problem profit maximization problem equilibrium experiments model without Pareto optimality 3 Malthusian model 4 Solow models 2/42 Schedule Week 1 Tue 27 April 1200-1400 Wed 28 May 1000-1200 Week 2 Tue 4 May 1200-1400 Wed 5 May 1000-1200 Week 3 Tue 11 May 1200-1400 each session has 2 hours, 10 hours of lectures in total all lectures in Peacock Theatre 3/42 Plan of Lectures Michaelmas Term 1 revision: consumers and firms Malthusian model, Solow model 2 beoynd Solow, endogenous growth Ricardian equivalence, Tobins q 3 unemployment models dynamic model Goal : to deepen your understanding of the most important models, not all-that-you-should-know to pass ec210 Use Moodle > Student Discussion Board to indicate your interest 4/42 Exam related remarks: marked by 2 persons, marking follows strict rules assessment : do not underestimate presentation and clarity > 80 correct, complete, clearly presented, showing understanding > 70 correct, complete and clearly presented > 50 partially incomplete or minor confusion > 40 get the fundamentals correctly, some understanding < 39 inconsistent or misunderstanding of main concepts plan the time : 8 short Q by 5 points, 3 long Q by 20 point, 180min in total 9min for one short Q, 36min for one long Q tips : dont lose time with SQ, illegible parts wont be marked, practice graphs 5/42 1 organization 2 revision utility maximization problem profit maximization problem equilibrium experiments model without Pareto optimality 3 Malthusian model 4 Solow models 6/42 Utility Maximization Problem motivation each period consumers choose how much to consume and how much to work given their budget and earnings opportunities what are we after: condition that describes optimal behaviour preliminaries MRS l , C is internal valuation of leisure in terms of consumption mathematically: amount of consumption that you need to be given in order to give up a unit of leisure and keep the same level of utility = MRS l , C = C / l so that you are on the same IC 7/42 what is C / l : take point A increase l by l units find B on the same IC C / l gives the slope decrease l to get a tangent = MRS l , C is the slope of IC Solution to consumers problem: point where highest IC touches the budget constraint point where slope of IC (= MRS l , C ) = slope of BC 8/42 Budget constraint: C = ( h- l ) w + - T in general its a line y = a + bx which has slope | b | with y = C and x = ( h- l ) = slope of BC = w intuitive argument: for MRS l , C = w consider points A: MRS l , C > w B: MRS l , C < w 9/42 Experiment: w SE: MRS l , C = w IE: C = ( h- l ) w + - T if both SE and IE, assume SE dominates: upward-sloping N s Experiment: T SE: MRS l , C = w IE: C = ( h- l ) w + - T 10/42 Profit Maximization Problem...
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2010_RL1 - EC 210 Revision Lectures Milan Lisicky...

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